from the protectionism-at-work dept

Paul Keating sent this one over a few weeks back, but just got around to going through the details. It appears that, as of January 1st, California (rather quietly) greatly increased (mostly doubled) the fines for "piracy" and "counterfeiting," while expanding the definitions of what qualifies for these new fines, by passing two laws (pdf) late last year, based on questionable reasoning:

According to its provisions,
AB 819 was intended to increase the state's tax base and stimulate the economy by safeguarding
the legitimate sale of intellectual property, and to send a strong signal that California is
committed to protecting the intellectual property created by innovation and entertainment
industries in the state.

In other words, here's a gift to Hollywood so that it will pay more taxes. As for the specific reasoning behind these bills, it gets more laughable the deeper you dig into the specific text of the bill which is summarized in the document above. However, let's go through the full findings:

(a) According to a 2007 study by the Institute for Policy
Innovation, intellectual property piracy, meaning the theft of
movies, music, software, and video games, costs the United States
economy $58,000,000,000 each year.

This one is just sad. The IPI's "methodology" for calculating such numbers has been debunked over and over and over again -- most thoroughly by Tim Lee years ago, in which he highlighted how their methodology involved double, triple, quadruple counting of the same exact dollars to come up with their ridiculous sums. Of course, rather than improve their methodology, IPI's response was to try to get Tim fired from his job. That the State of California would base significant legal changes on such a methodology is downright scary.

(b) The problem of intellectual property piracy continues to grow
worse. A 2005 Gallup study found that 5 percent of Americans had
purchased, copied, or downloaded counterfeit music in the preceding
year. By 2007, this number had jumped to 9 percent. The percentage of
respondents that admitted buying a pirated movie rose from 3 percent
in 2005, to 6 percent in 2007. At the same time, once robust DVD
sales have flattened over the past few years, while CD shipments to
retailers have plummeted.

Correlation is not causastion. Doesn't anyone in politics know this?

(c) The effect of intellectual property piracy on California and
its citizens is particularly dire. Intellectual property piracy
adversely affects the California economy, eliminates jobs, and
damages industry. According to the Business Software Alliance, in
2003, software piracy alone cost the California economy more than
13,000 jobs, over $802,000,000 in wages and salaries, over
$1,000,000,000 in retail sales of business software applications, and
roughly $239,000,000 in total tax losses.

The BSA's numbers are even more ridiculous than the IPI's and have been debunked over and over again. Even the company that put together the numbers for the BSA had admitted that the BSA clearly exaggerates what they mean. For example, the BSA still insists on using a 1:1 unauthorized copy = lost sale argument, which anyone with an ounce of common sense knows is laughable.

These are the kinds of stats that the GAO had specifically warned governments not to believe. So why are California politicians believing them?

(d) Intellectual property piracy poses a significant threat to
consumers, who, through no fault of their own, are often deceived or
deliberately misled, or both deceived and deliberately misled, as to
the nature of purchased products, whereby pirated goods are palmed
off, including in electronic form, as legitimate authorized goods.

Citation needed. Seriously. A major citation is needed here, because the studies we've seen suggest something quite different. They suggest that, quite rarely are consumers confused. In fact, multiple studies have shown that counterfeiting usually isn't a problem, because people know what they're buying, know they're fake, and often use them as incentive to save up for the real version later. Furthermore, many other studies have shown that the actual impact of counterfeiting is a tiny fraction of what the industry claims.

(e) A growing number of criminal organizations worldwide are
involved in intellectual property piracy.

This is both questionable and misleading. This claim has been tossed around for years with little in the way of actual evidence to back it up. Yes, there are some organized crime groups involved in counterfeiting operations, but most of this bill is about infringement of digital goods. This is an attempt to conflate the two issues since the actual reasons for such a legal change is so incredibly weak.

(f) This act will send a strong signal that California is
committed to protecting the intellectual property created by
California's innovation and entertainment industries.

(g) Finally, by safeguarding the legitimate sale of intellectual
property, California will increase its tax base, and stimulate the
economy.

That one sort of speaks for itself. Basically, here's a bill designed as a favor to our friends in Hollywood. As for the claims that it protects the tax base, that's also been debunked, as it's been shown that such infringement almost certainly helps other industries at a much greater rate -- and those industries pay more in taxes. Plus, all the money not spent on these things doesn't just disappear, but still is spent in the economy (and taxes are paid on it).

It's pretty sad to see California passing laws like this based on such ridiculously bad and debunked evidence.

Perhaps this only serves to highlight my naivete, but how do you "counterfeit" music?

You are perhaps misleading as to the legality of the copied/downloaded/purchased file or disc, but generally the assumption is that the music is a copy of a performance or recording actually made by the very recording artists it purports to be from.

To counterfeit music, wouldn't you have to record a cover song and attempt to represent it as being from the original performers?

Re:

I suppose they mean "counterfeit CDs" - but are those even still around anywhere? The convenience store by my house sells counterfeit DVDs in slips printed with the original box art, and that's what I'd call counterfeit (although obviously the claim that people are misled is laughable, since they keep a portable DVD player on the counter so you can check if the quality is good and the audio is synced properly) -- but really, CDs? For the price of one CD you could buy a USB stick and go to the library.

Re:

How many articles does Masnick write every month trying to propagate the ridiculous notion that piracy doesn't have negative economic consequences?

And how many times will you comment and falsely claim this is what I said? I never said it had no economic consequences. As I've discussed quite directly with you (I believe) in the past, the evidence I've presented is clear that it will absolutely cause negative economic consequences *to those -- like yourself -- who choose not to adapt to the market*.

Your response has been to throw up your hands, admit that you refuse to adapt and then yell at me for telling you how to make more money. It's so bizarre.

But the point is not that there are no consequences, but that those consequences are not at all what these studies claim. You have never refuted this point, other than to say that the bands who listen to your bad advice are failing and people need to get day jobs.

Meanwhile, the folks listening to me are doing better than ever before. So how is it again that you claim I'm defending pirates, when artists who listen to me are doing better, and artists who listen to you are doing worse? It would appear that listening to you is a recipe for disaster. So why are you so angry at those of us who are actually helping artists?

Re: Re:

Every band I've worked with, or even know for that matter, has used personalized promo. I've told you that before. I've also told you that it's an old concept and your rebranding of it doesn't change that fact.

Your whole agenda is that piracy has won, and people need to sell more tshirts or whatever to adapt. It's a ridiculous fantasy you have, that IP is going to be allowed to be infringed upon from here on out. That's why you're constantly whining when enforcement is carried out, because it's breaks your fragile delusion.

Re: Re: Re:

Every band I've worked with, or even know for that matter, has used personalized promo. I've told you that before. I've also told you that it's an old concept and your rebranding of it doesn't change that fact.

And we've discussed -- repeatedly -- that if you think what we're talking about is just personalized promo, you're doing it wrong. Personalized promo is about selling shit. It ignores the CwF part of the equation, which isn't surprising, since you seem to think your fans are "pirates."

Seriously. I'm not joking about this. You're doing it wrong. You still have failed to explain why those listening to me are doing better than ever before, while those listening to you are doing worse.

Re: Re: Re:

It's a ridiculous fantasy you have, that IP is going to be allowed to be infringed upon from here on out.

It's a ridiculous fantasy you have, that infringing on IP was ever "allowed."

The punishments have gotten worse and worse, yet piracy rates keep climbing almost exponentially. Harsh laws were never a deterrent, and never will be. Hell, they could give the death sentence to copyright infringers, and people would still find a way to do it.

Re: Re: Re:

Re:

For one thing, in at least some industries, there is a lot of evidence to suggest that counterfeit products have benefits. Then there's the music industry taken as a whole, which is growing, not shrinking.

The term "negative economic consequences" is vague, perhaps in an attempt to be ominous but imprecise. Certainly there are measurable losses to particular companies that correlate heavily with and seem to, at least in part, be the result of piracy - record labels being a prime example. But in terms of the overall economy, is there really any evidence to show losses from piracy? Other than widely discredited (and laughed-at) studies with flawed methodologies, that is.

It may seem obvious at a glance that piracy hurts the economy, but that doesn't make it true. Economies are complex creatures and, given that we are living in the midst of rapid technological innovation, it seems likely that the losses we assume are from piracy are at least somewhat representative of much broader market shifts.

Is that really so unreasonable? You keep making it out to sound crazy, calling it a fantasy and so on - but it seems any intellectually honest person on any side of this debate would agree that it's at least worth considering.

Re: Re: Re:

You seem to have once again confused the recording industry with the music industry.

Remember the great transportation bust of the early 20th century, when all the transportation giants went out of business? Boy, the invention of the car sure was a bad day for transportation. And don't you think it's stupid how nobody can type anymore, since they don't have typewriters in schools? Computers killed typing.

Re: Federal v. State

I'm actually very curious about this myself.

Under USC Title 17, Chapter 3, Sec. 301, all material covered by Federal copyright is governed exclusively by Federal law. In its own words, "no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State."

Re: Re: Re: Federal v. State

Well, they are changing the criminal fines, not actually changing the way the copyrights work - is that how they managed it?

Except the fines are also explicitly set in Title 17.

Seriously, I'm at a loss for an explanation here. I mean, I know that certain things aren't covered by federal copyright law, and states can create their own copyright laws for that (which is why no recorded music will be public domain in our lifetimes). But I don't know how they're allowed to create fines above and beyond what the Feds set.

Re: Re: Re: Re: Federal v. State

Thanks, you guys. I was wondering the exact same thing. This is obviously just grandstanding, and they know it won't make it past the first court test. It's just a way to give Hollywood a warm and fuzzy.

Re: Re: Re: Re: Federal v. State

Those statistics are incorrect...

Those numbers are incorrect. After careful counting and using systems of evaluation that are perfect and without contest, the actual number of jobs lost due to piracy is about 32.5 billion jobs last year. Got that??? Over five times the planet's entire population was laid off!! You can't contest that. Every single person was hired and fired over six times. My boss called me in and said "Sorry. We have to let you go. Piracy is rampant and cost you your job." To which I replied "We sell engine blocks!!!" So there you have it. Someone trading a CD online cost some poor fast food employee his job because that one CD screwed up the burger he was making.

And $58,000,000,000??? What a load of crap. I'll have you know that the actual loss last year alone was over three hundred times the gross domestic product. Got that?? Three hundred times of our stuff just suddenly was taken out and shipped overseas. Know what we have left now? Rocks!!! That's it! Rocks, and maybe some sand somewhere. Piracy cost us everything the United States owned. I hope you're happy now. Download one copy of the movie 'Inception', and suddenly some other country repo's the entire continent. What a bummer...

lets say everyone pirated it all

zero tax dollars right?
UM NO? cause the money they have will get spend and taxes will be taken from that. WHAT Hollywood and California are doing is trying to steal more money form every other business in the state so they have it all. Seriously what ends up is a tipping point when no one or very few actually can afford anything and then you get people pirating not because they wanted too but because to go without life without any entertainment is in my opinion also another form of torture.

@#8

you mean the majority of human beings on the planet that aren't working for a label that steals for 40 years ( CRIA )by doing commercial copyright infringement....and doesn't even get the standard 20,000 per infringement fine form the govt , yet a guy like maven whom did sell a little was not nearly on the same league....gets jail and a fine? then died as a result of going to jail?

Economics 101

man has 100$
he can buy 100$ of cdrs and get 5 of them
OR he can get one (20$) and buy 80$ groceries ( NO TAX)
hrmmm
OR he can buy nothing form hollywood and eat better and pay no taxes
OR he can buy a cdr writer form sony ( LOL ) and pay taxes on it.
you get the idea
no taxes are lost until i have to eat ( at least in canada )

what seems to make this even more ridiculous is the articles here concerning 'Hollywood Accounting', 'RIAA Accounting' and the recent amount the record labels have had to pay to artists after 'pirating' their works countless times, over countless years and making money from that 'pirating' by selling compilation cds' with those music tracks on. why the courts and politicians take the figures stated here as being correct is pretty obvious. they are 'encouraged' to do so, discounting completely that those figures are produced by totally biased industries that will stop at nothing to make themselves out to look to be the injured parties, losing money, when they are in fact making an absolute fortune! file sharers do it for free!

Tax IP like real Property

If the entertainment industry wants to treat IP like real property, let us tax IP like real property. Does anyone know the property tax rate in Hollywood? With all properties that are just sitting in the vault, I think Hollywood owes LA county $500,000,000,000 see we can make up numbers too. You pay property taxes on the assessed value of the property regardless of whether the property is making any money or not. I know this is just a strawman but if Hollywood wants to have IP be real property then let us go all the way.

Ancedotal Evidence

Just a short story to debunk this outright.

Two years ago, I downloaded SimCity 4 from the Pirate Bay. I did so again about 7 months later after I reinstalled Windows, and again about 8 months ago. Then, a month ago, I had $23 remaining on a Best Buy gift card, so I spent $9.99 of it on SimCity 4. I just reformatted my system again, and what do ya know, since I've already used the serial number, I'm just downloaded a keygen an hour ago.

If I hadn't played it first, I would've never bought it, and knowing now that I cannot install the game multiple times ON THE EXACT SAME COMPUTER, I will probably never buy another game that uses the same anti-piracy system again.

I've been playing Mass Effect 2 for almost 3 months now. I get paid later today and am going to go buy it tomorrow - yet I will continue to run the pirated version to save myself from having to reinstall it. By the same token, I will never buy Quake 4 - I played it a week, didn't care for it, and deleted it. Never paid for it, never will. Essentially, I use piracy to screen out what's worth my money and what isn't. To that end, I have never pirated any software which offers a a free trial, provided the trial is time based, and not a crippled version of the product.

So no, this law won't help, and yes, it's based on very badly flawed logic. I'm living proof.

Here is a GAO Doc. on IP Enforcement/Infringement

Let me direct you all to an interesting study by Mr. Loren Yager, Director, International Affairs and Trade, Government Accountability Office (GAO), Washington, D.C. at the WIPO Website during a recent meeting there held by the WIPO Advisory Committee on Enforcement: Go to Document WIPO/ACE/6/4.:

OBSERVATIONS ON EFFORTS TO QUANTIFY THE ECONOMIC EFFECTS OF COUNTERFEIT AND PIRATED GOODS

There are other articles there that can be used to have a constructive discussion on IP infringement issues and debate.

Laws based on defective research

It is incredible to me that the only research being conducted to analyze piracy, non compliance, and the cost of incorrectly licensed copyright protected products is the research being conducted by, and for, the copyright holders themselves.

The Institute for Technology Asset Management has attempted for nearly five years to locate grant money to conduct the first supplier-neutral study. Results? Zero support.

There has been such an atmosphere of paranoia surrounding copyright violations that the only statistics available are those generated by the very enterprises who have backed and supported so many of our draconian intellectual property rights laws. The enforcement industry players establish gag rules that apply to nearly every enterprise targeted for punitive audit. Those gag rules ensure that there is little or no clear information on which an independent study may be based.

As long as the only available data on copyright issues is controlled by the copyright holders and their enforcement industry friends, the reality of these so-called crimes will never be accurately calculated.